KEY OUTCOMES FOR FOREIGN INVESTORS IN VIETNAM'S NEW LAW ON INVESTMENT
Vietnam’s new Law on Investment 2020 (LOI 2020) enters into force from January 1, 2021. This new law will replace Law No. 67/2014/QH13 (“LOI2014”), which has come into force since 2014. The notable provisions of the LOI2020 for foreign investors in Vietnam include the introduction of a “negative list” for foreign investment, an increase in ownership threshold for treatment as a national investor, a “national security” provision, new incentives, and additional measures to streamline investment procedures
The Ministry of Planning and Investment is developing and providing additional guidance as to conditions for investment in certain sectors, and procedures for obtaining project approval.
Below, Doanh Tri Law Firm will make a brief summarise of the notable outcomes.
I. Legal basis
- Law on Investment (Law No.61/2020/QH14).
II. Key outcomes in LOI 2020
- Negative list
For the first time in Vietnam, lawmakers introduce a “Negative list”. By introducing the “Negative List”, the foreign entities are afforded national treatment with regard to investment except in those sectors explicitly set out in an accompanying List of Restricted Sectors.
Under LOI 2020, investment in certain sectors may be totally prohibited or subject to certain conditions. All investment is banned in eight enumerated sectors
Certain sectors are considered conditional for all kinds of investment and may require formal approval. Such conditional sectors must “satisfy necessary conditions for reasons of national defense, security, social safety, or social morality, the health of the community. These sectors are listed in Appendix IV ("List of Conditional Investments and Businesses") of the LOI 2020. Conditional sectors will also be listed on the National Business Registration Portal.
Conditional investment rules apply to foreign investors, with additional potential restrictions including:
(i) Percentage ownership limits;
(ii) Restrictions on the form of investment;
(iii) Restrictions on the scope of business and investment activities;
(iv) Financial capacity of the investors and partners; and
(v) Other conditions under international treaties and Vietnamese law.4
These rules will be further explicated by forthcoming implementing regulations.
The List of Conditional Investments and Businesses of the LOI 2020 details 227 sectors with some changes from the LOI 2014. For example, sectors added to the conditional sectors list include water sanitization and architectural services. Certain sectors, including franchising and logistics, were removed from the list.
- Lowering “foreign investor” threshold from 51% equity to 50%
Under the LOI 2014, enterprises 51% or more foreign-owned were treated as “foreign investors” for the purposes of investment activities. Hence, A company, which has more than 50% foreign entity could still receive the benefits afforded to domestic enterprises. However, The LOI 2020 change this scenario, lowering the “foreign investor” threshold to 50%.
- Restrictions relating to “sham” nominee transactions.
The LOI 2020 stricken rules of Vietnamese nominees in order for foreign investors to access restricted sectors.
- National security measure
The LOI 2020 indicates that all kinds of investments shall be suspended or terminated if such activities are harmful, or are in danger of harming national defense or security.
- Investment incentives
The LOI 2020 introduces new incentives for investment in several below sectors:
(i) High-tech sectors, including software development, clean energy technologies, and information and communications technology-related products;
(iii) Public transportation;
(vi) Pharmaceuticals and other health industries; and
(vii) Investment projects for creative startups.
Further, the LOI 2020 provides for investment incentives in "[a]reas with difficult socio-economic conditions" and industrial zones.8 Such incentives may include tax incentives, access to credit, support for research and development, and other measures.
Other notable provisions. The LOI 2020 includes a range of provisions dictating the terms for Vietnamese outbound investment and includes additional rules and guidance regarding investment approvals, including procedures for the issuance, adjustment, and termination of outward Investment Registration Certificates.
III. Doanh Tri’s Outlook
The issuance of the new Law on Investment (Law No.61/2020/QH14) makes foreign investment structurally more permissive. However, the vague remains of conditions for investment in the “conditional” sectors, along with the use of the national security provision.
To gain in-depth knowledge about business restriction in Vietnam, please contact Doanh Tri Law Firm via:
Hotline: (+84) 911.233.955 - (024) 6293 8326
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